Budget 2018

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The following is a summary of the key areas of Budget 2018.

CTU Budget analysis summary

The Government’s first Budget clearly shows they are focused on the right priorities.

The highlights have been health, the increase in state-housing, and some targeted education spend such as early childhood education.

However, alongside each of these improvements the lack of revenue and unreasonably restrictive budget responsibility rules have meant opportunities to do more have been lost.

Health

Health has been the principal winner. This is the first budget since 2010 in which the health budget has actually kept up with population growth and ageing, cost pressures, and the cost of new initiatives. That is, it has not shrunk in real terms. In addition to this there has been an additional $80 million put toward filling in the annual $2.7bn health spending hole that has been created over the previous eight years.

In terms of priorities, reduced fees for community services card holders and increasing free doctor visits to under 14s is welcome and smart targeting, as is the significant increase in capital spending. However there does not appear to be sufficient funding to cover wage increases and pay equity.

Housing

Appropriate funding for Kiwibuild has been allocated and it appears to be on-track.

The announcement of 1600 additional state houses per year for the next four years is extremely timely given the homelessness crisis, and exceeds the Government’s campaign commitments.

Unfortunately it isn’t enough to meet even the current waiting list for households. Providing for Housing New Zealand to raise $2.9bn in private debt to fund mortgages removes the debt from the core crown accounts. This is effectively the Government doing an end run around their own Budget Responsibility Rules, and it comes at a price as the cost of the debt will be higher than debt the crown can access directly.

The significantly expanded funding for the Housing First (including expanding to a further 550 households) programme is very welcome.

Education

Cost adjustments in ECE have been unfrozen for the first time in nine years, with $105m over the next five years and $13.6m in 2018/19.

$272.8m over four years is being spent on learning support  - including ORS, sensory school, teacher-aide funding and early childhood early intervention.  ORS funding rises $22m this year.

The operation grant for schools grows 1.6 per cent - little more than the rate of inflation. There is also $394.9 million to fund new schools and classrooms to meet roll growth.

Tertiary Education gets its first increase in overall funding since 2015, with $237m more in 2018/19 - primarily to fund the government’s policy of one year fees-free education and training for new students and trainees.

But in all areas of education there is disappointment at the lack of funding to address longstanding funding shortfalls, staffing levels and recruitment problems.

Industrial

Government has moved on its commitment to double the number of labour inspectors with $8.8m over the next two years.There is just $320,000 extra for WorkSafe in 2018/19.

BRR

Government undershot its own rule for spending to be 30% of GDP - in this budget it was 28.5%. A spend of thirty percent would have allowed an additional $4.5bn to be allocated. This it could have funded the entire backlog of health underfunding and contributed to more real growth in education funding.

Alternatively, casting the BRR aside could have allowed the Government to have made significant progress across all of its priority issues rather than merely signalling its intended direction.

It is likely this undershooting of the 30% rule is the result of pressure to produce a surplus and show a firm commitment to the BRR rule of paying down debt. Set against the unmet and urgent need for public service spending, and New Zealand's relatively low government debt profile, this commitment is questionable.

There is no doubt that the BRR has hamstrung the Government, and that it will continue to do so in future budgets. The BRR makes no sense when we weigh up social and environmental needs alongside financial ones as the Government intends to do with its wellbeing Budget framework starting next year.

The Government’s own $2.9bn housing end run around the BRR shows that even they understand these rules are absurd.

Revenue

The cost of the previous Government’s 2010 tax package where it cut taxes for the wealthy was around $2bn per year. The current government should not be trying to work within this fiscal straitjacket when there are clearly urgent priorities that need to be met.

It is clear from this budget that the Government understands what needs to be done but lacks the resource to achieve it. Its priorities of health, housing, education, and the environment have been overtly signaled in this budget, but so too has its inability to make the significant change that it was elected on. For example vote conservation has included an announced $182m but only $8m is allocated in this budget, with funding increases in predator control, tourism and recreation coming at the cost of $20m cut from DOC’s core Natural Heritage funding. The totally new money allocated to DOC in this budget is just $8m.

Similarly, the forgone revenue from maintaining the previous administration’s lean tax settings has left the Government unable to rectify the historic health and education underspend, or to take the next steps needed to address poverty and New Zealand’s high inequality levels.

Recent polling has shown there is a strong desire from the public for increased funding of public services and increases in tax revenue to achieve this. The Government should listen.